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COMPENSATION & REWARDS
Dec 16, 2013

OPG compensation woes a cautionary tale

Total rewards strategy, governance, key to optimal spend
    

By Claudine Kapel

Ontario Power Generation’s total rewards practices have come under fire in the wake of a highly critical report by the province’s auditor general.

The findings have prompted the Ontario government to suggest it may seek to take control of salaries and benefits at the Crown corporation, with media reports indicating such legislation could be tabled early next year.

While few organizations could imagine facing similar circumstances, especially in the private sector, OPG’s woes highlight the slippery slope that can lead to runaway total rewards costs in any organization.

Ultimately, the report didn’t identify just one or two areas of concern. It identified a multitude of issues and excesses, which led the auditor general to assert that OPG’s “generous” compensation and benefits were negatively impacting electricity costs.

Some of the major audit findings included:

  • Compensation and benefits were significantly more generous at OPG than for comparable positions in the Ontario Public Service.

The report observed OPG had conducted a compensation benchmarking study in 2012, which found that base salary, total cash compensation and pension benefits for a significant proportion of staff were “excessive” compared to market data. The audit report noted many of OPG’s senior executives earned more than most deputy ministers.

  • While reducing its overall staff by 8.5%, OPG increased the size of its executive and senior management group by almost 60% since 2005, “creating a top-heavy organization.”
  • About 8,000 employees – or 62 per cent of staff – were on the 2012 Sunshine List of public sector employees earning more than $100,000.

The report also cited “a number of cases” between 2005 and 2012 where the annual base salaries of non-unionized staff exceeded the maximum set out in the base salary schedule “by more than $100,000.” It noted OPG’s response was that before 2010, it treated the maximum “as a guideline rather than a limit.”

  • The distribution of high scores under OPG’s annual incentive plan (AIP) “has been skewed toward executives and senior management staff.” Yet “some executives had incomplete or no performance evaluation documentation to support their high AIP scores.”
  • OPG’s pension plan is “generous by any standard” and “contributions made by OPG have been disproportionately larger than those of its employees” and “significantly higher” than the one-to-one ratio for the Ontario Public Service. The audit report added that executives at OPG are eligible for “particularly generous pensions,” noting the top five executives at OPG will be eligible for annual pensions ranging from $180,000 to $760,000 when they reach age 65.
  • The number of OPG employees earning more than $50,000 in overtime pay has doubled since 2003. The report noted planned nuclear outages have resulted in high overtime pay, especially for inspection and maintenance technicians.
  • The number of vice presidents and directors “with no specific titles or job descriptions” has “increased significantly” since 2005.
  • Numerous staff with family members working at OPG were not hired through the normal recruiting process.

While it’s not likely any provincial government will be taking an interest in how your organization manages its total rewards costs, we’ve all probably seen at least some of the practices at OPG in other companies.

Prevalence doesn’t make a practice sound, but it suggests that many organizations – in both the public and private sector – can probably benefit from some total rewards housecleaning. Taking the time to review your organization’s total rewards strategy and related governance can help you identify issues before they escalate or become more damaging.

Unlike OPG, the rest of us still have the opportunity to take stock of total rewards programs and practices outside of the glare of the public spotlight.

Claudine Kapel is principal of Kapel and Associates Inc., a Toronto-based human resources and communications consulting firm specializing in the design and implementation of compensation and total rewards programs. For more information, visit www.kapelandassociates.com.

    
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